How to Negotiate Out of Foreclosure

This is a word to the desperate. If the bills are piling up, if you're behind on your mortgage payments, if you're struggling to avoid foreclosure, there is still hope.

The Obama administration has offered a temporary plan, but even before its details are announced March 4, counseling services report that more than half the families threatened with foreclosure end up negotiating new mortgage terms and staying in their homes.

"The good news is that there is a way to help people," said Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, or NACA, a nonprofit advocacy organization for homeowners. "Make it affordable, make it permanent, end of story."

Boston-based NACA steps in to negotiate settlements between cash-strapped homeowners and troubled lenders. It has been known for in-your-face tactics, such as demonstrations outside bank executives' homes. But they and other advocates say they often get results for people.

"We determine their net income and what their expenses are, to come out with a mortgage payment that you can afford, and then we restructure that loan to make it affordable forever," said Marks.

That would be a welcome thought to Darlene Gray and her husband, who went to an NACA workshop in Stamford, Conn.

"They want to bail out banks?" she said. "What about bailing out the homeowners?"

HOPE NOW, a Washington-based foundation, is one of the largest agencies offering help for worried homeowners, and operates a 24-hour hotline: 888-995-HOPE. The service, which is backed by mortgage companies and advocacy groups, and recommended by the Federal Trade Commission, is free. The Department of Housing and Urban Development can recommend other services. It has an automated toll-free number: 800-569-4287

Why do lenders go along? Because their little secret is that, much as they want you to pay what you owe, it is worse for them to foreclose, throw you out -- and be stuck with your house.

Avoiding Foreclosures

"It's expensive for them to go through the process of foreclosure and then try to sell your house," said Faith Schwartz, executive director of HOPE NOW.

"Lenders don't like people to have to leave their homes. It also ravages a community, and drives down the value of other homes."

That doesn't mean you can get out of paying, but you may be able to negotiate a more favorable deal. Perhaps you can get more time to pay off the mortgage or a lower interest rate. If your financial problems are not getting better, you may have to sell your house and rent a place to live, but even that is better than foreclosure.

"What doesn't work are payment plans where people pay more every month to make up for what they missed," said Marks. "If you couldn't afford your existing payment, you can't afford a higher one.

"What does work is restructuring -- changing the terms of your existing loan," he said. "In virtually every case it's better to restructure than foreclose."

It is important to call your mortgage company promptly if you realize you are in trouble, say counselors. Depending on state laws, a delay of 90 to 120 days -- three to four missed payments -- can lead to a "foreclosure start," the legal notification that your lender has begun foreclosure proceedings against you.

"If you don't reach out, you will go to foreclosure," said Schwartz. But she says her group has found that if people do call their lenders, and can demonstrate they're facing financial hardship, fewer than half end up losing their homes.

"It sounds easy, doesn't it?" she said. "But it's amazing how many people are afraid to pick up that phone."

Counseling Services for Struggling Homeowners

Counseling services -- especially those with agents approved by the U.S. Department of Housing and Urban Development -- can help people get organized before they make that daunting first call.

Organizations reached by ABC News said to be suspicious, though, of scam artists who charge upfront fees, or con people into signing over the deeds to their houses. "Some of these companies even use names with the word HOPE or HOPE NOW in them to confuse borrowers," warned the Federal Trade Commission.

But good help does exist, and need not cost anything. "While it's not perfect, there's a lot of reason for hope," said Schwartz. "A lot of people, in the end, are relieved."